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Yahoo will spin off its stake in Chinese e-commerce giant Alibaba

January 27, 2015 04:28 PM

(Bloomberg) -- Yahoo Inc. shares jumped after the web company announced a tax-free spinoff of its entire stake in Alibaba Group Holding Ltd.to maximize its return of cash to shareholders and minimize taxes on the sale.

The deal with the Chinese e-commerce company will put Yahoo’s Alibaba shares into a newly registered company called SpinCo, which will own all of Yahoo’s remaining 384 million shares of Alibaba value at $40 billion, the Sunnyvale, CA-based company said Tuesday. SpinCo will be distributed to existing Yahoo shareholders as a separate public company.

CEO Marissa Mayer is taking the steps after Starboard Value LP and other investors pushed her to return cash to shareholders, find ways to cut taxes and avoid major acquisitions. The roughly $45 billion in Asian assets that Yahoo owns has supported the company’s value in the past two years and given Mayer, who became CEO in 2012, cover from shareholder pressure as she worked to turn around Yahoo. Now, with a disposal plan in place, the focus will shift back to whether Mayer can revive revenue, which has been stagnant for five years.

“It’s all about Alibaba,” said Brian Wieser, an analyst at Pivotal Research Group LLC. “It’s all that investors have been focused on.”

Shares of Yahoo rose as much as 10% in extended trading. The stock, which declined 2.9%to $47.99 at the close in New York, rose 25% in 2014.

The spinoff deal will be completed in the fourth quarter, after the expiration of Yahoo’s one-year lock-up agreement on the Alibaba shares, Yahoo said in the statement.

Recovery Push

The company also reported results for its fourth quarter. Sales, excluding revenue shared with partner web sites, fell 1.8%to $1.18 billion in the fourth quarter. Profit, excluding items such as stock-based compensation, was 30 cents a share.

Mayer, seeking to drive a recovery since she arrived in July 2012, has been investing in products, partnerships and ad services to expand Yahoo’s reach and restore growth, including on mobile devices where users increasingly access digital content.

While Mayer has touted efforts to boost the core business, investors have focused on her stake of about 15% in Alibaba. The company, which formerly owned more than 20%, sold $10 billion in shares in September as part of the Chinese company’s initial public offering. Yahoo, which paid about $3 billion in taxes on that sale, had said it plans to return at least half of the proceeds to shareholders.